TAKING STOCK.

General Motors appears stuck in neutral

Major woes offset signs of progress

Q. I'm thinking about selling my stock in General Motors Corp. What are its long-term prospects?

A. The world's largest carmaker is trying to get back into gear.

Stalled by expensive cash-back rebates and other incentives aimed at North American customers, it suffered a 30 percent earnings drop in its most recent quarter. Only the fact that its finance business doubled in profit kept the situation from worsening.

After two straight years of gains in market share, it will have a hard time repeating that performance. It currently has a U.S. market share of 27.9 percent, down from 28.6 percent for 2002, mostly because foreign competitors launched a number of new models.

Despite extensive cost-cutting measures throughout its business, the firm still has giant pension and retiree health-care liabilities that continue to drag on overall finances.

Nonetheless, it remains aggressive, with plans to release up to 70 new car models in North America from now until 2008, most of them midsized vehicles. Already manufacturing the Buick Excell in China, it will assemble at least three Cadillac models in that country in the next two years.

General Motors (GM) shares are up 12 percent this year, following last year's 21 percent decline. It offers the strongest dividend yield of the major carmakers.

Some other positives: GM is now rated best in initial quality by J.D. Powers among the Big Three U.S. carmakers and ranks fifth best among all companies that manufacture cars in this country. In addition, North American chairman Bob Lutz, formerly of Chrysler, has been diligently updating the carmaker's designs to make them more contemporary.

Partly because GM operates in a deeply cyclical global industry, its shares currently receive a consensus "hold" rating from the Wall Street analysts who track them, according to the Boston-based First Call research firm.

Representing a wide range of opinions, that rating consists of three "strong buys," one "buy," eight "holds," two "sells" and one "strong sell."

GM earnings are expected to decline 27 percent this year, versus the 13 percent decline forecast for the auto industry. Next year's projected 5 percent decline compares to a 9 percent gain forecast for its peers.

The company's predicted five-year annualized growth rate of 5 percent is in line with the industry.

GM agreed earlier this year to sell its Hughes Electronics subsidiary to News Corp. Its brands include Buick, Cadillac, Chevrolet, GMC, Pontiac and Saturn in the U.S., in addition to Opel, Saab and others abroad.

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Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey #184, 369-B Third St., San Rafael, Calif. 94901-3581 or by e-mail at andrewinv@aol.com.